COST REDUCTION IN MANUFACTURING

INDUSTRIES

OPERATIONS MANAGEMENT

GROUP MEMBERS

Muhammad Atif Khan 52387 Sami Aslam 52390 Zohaib-ur-Rehman khan 52400

PRESENTATION CONTENTS

INTRODUCTION TO COST COST REDUCTION ADVANTAGES OF COST REDUCTION COST REDUCTION STRATEGIES EXAMPLES IN MANUFACTURING

INDUSTRIES CONCLUSION

COST

Cost

Profit

Price

Price = Cost + Profit

Cost Reduction

Cost can be reduced through Reduction (prod time, waiting, inventory) Elimination (waste, bottle necks, barriers)

Modification (system, design) Innovation (Re-engineering, methods of

producing, equipment, tooling)

COST REDUCTION RESULTANT

INCREASE PROFITS REDUCE WASTE INCREASE PRODUCTIVITY COMPETITION RESOURSE CONSERVATION IMAGE ENHANCEMENT

COST REDUCTION AREAS

RAW MATERIAL PROCUREMENT & LOGISTICS (SCM)

DESIGN & DEVELOPMENT MANUFACTURING (PRODUCTION) ENERGY HUMAN RESOURCE SALES & MARKETING

COST REDUCTION STRATEGIES

COST REDUCTION BY DESIGN COST REDUCTION BY LEAN MANUFACTURING COST REDUCTION BY OVERHEADS COST REDUCTION BY STANDARDIZATION COST REDUCTION BY PRODUCT

RATIONALIZATION COST REDUCTION BY SUPPLY CHAIN MGMNT COST REDUCTION BY TOTAL COST

MEASUREMENT

COST REDUCTION STRATEGY

COST REDUCTION BY DESIGN

Product development determines 80% of product cost

Cost is controllable in design phase

COST REDUCTION STRATEGY

HOW TO REDUCE COST BY DESIGN Design for manufacturing Tool & Die design (Software predict the design

quality) Design for lean Design for quality (Use quality tools)

BENEFITS Cost of part Labor cost Reworking cost Maximize quality

COST REDUCTION STRATEGY

COST REDUCTION BY LEAN MANUFACTURING

LEAN provides a way to do more & more with

less & less

It accelerates production by elimination of

wastes (Handling, waiting, inventory etc)

It improves throughput by 90%

COST REDUCTION STRATEGY

HOW TO REDUCE COST BY LEAN MANUF. Implement LEAN production Flow Manufacturing

●Single Piece Flow Manufacturing

●Cellular Manufacturing

BENEFITS OF LEAN MANUFACTURING

Elimination in Waste of handlingWaiting InventoryLabor hr Reworking & Rejection

What is Overhead cost

Overhead costs for a business are the cost of resources used by an organization just to maintain its existence. In business, overhead, overhead cost or overhead expense refers to an ongoing expense of operating a business.

Examples of overhead costs include:

Payment of rent on the office space a business occupies

Cost of electricity for the office lights Some office personnel wages Cost of consumables

How to Reduce Overhead Cost:

By implementing Build-to-Order and Mass Customization we can reduce the overhead cost.

Build to orderOften abbreviated as BTO and sometimes referred to as make to order (MTO), is a production approach where once a confirmed order for products is received, products are built. This approach is considered good for highly configured products, e.g. computer servers, or for products where holding inventories is very expensive, e.g. aircraft.

Mass CustomizationMass customization refers to a customer co-design process of products and services which meet the needs of each individual customer with regard to certain product features.

Benefits of Build-to-Order Production

Reduces manufacturing costs—particularly in engineering.

Makes it easier to plan and forecast material requirements.

Eliminates finished goods inventory. Finished orders ship directly to the customer usually upon completion.

Increases operating margins. Boosts on-time delivery.

Benefits of Mass Customization

By providing tailored products to meet particular needs, you shift the focus from price to benefits.

Whilst it is possible to manufacture at a mass produced price, you have the option to charge a premium whilst still retailing below the price of a custom product. This in turn will open your product to a wider market.

What is Standardization

The procedure of maintaining methods and equipment as constant as possible.

Standardization is the process for select better choices and ratificate this consistent decisions, as an obtained standard.

How to reduce standardization cost

Rationalize products to eliminate or outsource the most unusual products that have the most unusual parts and materials

Total cost measurements to justify standardization efforts and encourage picking standard parts

Don’t merge acquired products into the same plant or build others’ products

Benefits of Standardization

Purchasing costs reduced through purchasing leverage

Inventory cost reduction Overhead cost reduction Vendor reduction Inventory reduction Parts availability

Supply Chain Management Cost Reduction

SCM is responsible for goods and services from raw material to finished goods, suppliers, vendors etc

How to reduce cost by SCM

Design products around standard parts to simplify Supply Chain Management

Standardize parts to focus Supply Chain Management on high-volume, easy to get parts

Advantages of cost reduction by SCM

Reduction in material overhead Reduction in inventory Automatic re-supply eliminates forecasts,

purchase orders, inventory, and expediting costs

Reduction in logistics (transportation cost)

Cost Reduction by Quality

Quality cost reduction determines Cost of Quality (COQ)

COQ includes all reworking, rejection, quality equipment, standardization, quality people, quality of products or service and time

How to reduce cost by Quality

Eliminating quality costs starts with designing in quality

Quality costs can be eliminated with Six-Sigma programs

Avoid wasting quality resources on inherently lower quality products

Use of quality tools in production & design Process control by process capability

Advantages of cost reduction

Increase in quality of product or services Customer satisfaction and reliability Product durability Decrease in cost of quality Decrease in production cost

EXAMPLES IN MANUFACTURING

INDUSTRIES